cpa audit review ch 13 review 3

Card Set Information

Author:
Joens1313
ID:
284458
Filename:
cpa audit review ch 13 review 3
Updated:
2014-09-30 00:29:55
Tags:
cpa audit review 13
Folders:

Description:
cpa audit review ch 13 review 3
Show Answers:

Home > Flashcards > Print Preview

The flashcards below were created by user Joens1313 on FreezingBlue Flashcards. What would you like to do?


  1. In connection with the audit of bonds payable, an auditor would expect to find in a trust indenture the

    A.Yield to maturity of the bonds issued.

    B.Names of the original subscribers to the bond issue.


    C.Issue date and maturity date of the bond.

    D.Company’s debt-to-equity ratio at the time of issuance.
    C.Issue date and maturity date of the bond.

    A bond trust indenture is the contractual agreement between the bondholders and the bond issuer. It contains the date of issue and the date of maturity of the bond issue. It also contains (1) the amount of the bonds, (2) interest rates, (3) payment dates, (4) descriptions of collateral, (5) provisions for conversion or retirement, (6) trustee duties, (7) sinking-fund requirements, and (8) restrictions on the borrower.
  2. Which of the following is the most important consideration of an auditor when examining the shareholders’ equity section of a client’s balance sheet?

    A.Changes in the capital stock account are verified by an independent stock transfer agent.

    B.Entries in the capital stock account can be traced to a resolution in the minutes of the board of directors’ meetings.

    C.Stock dividends or stock splits during the year under audit were approved by the shareholders.

    D.Stock dividends are capitalized at par or stated value on the dividend declaration date.
    B.Entries in the capital stock account can be traced to a resolution in the minutes of the board of directors’ meetings.

    A primary concern of the auditor is that all capital stock transactions are properly authorized. Accordingly, all entries in the capital stock account should be traced to the minutes of the board of directors’ meetings. The articles of incorporation, by-laws, and minutes of shareholders’ meetings should also be reviewed. The auditor requires information about the number and rights of shares authorized and issued, the par or stated value, conversion and call features, stock dividends, and stock splits. The auditor also determines whether transactions are properly accounted for and shareholders’ equity items are presented in accordance with the applicable financial reporting framework.
  3. Florida Corporation declared a 100% stock split-up effected in the form of a dividend. In connection with the audit of Florida’s financial statements, Florida’s auditor should determine that

    A.Florida’s shareholders have authorized the issuance.

    B.The issuance was properly recorded at fair value.

    C.The additional shares issued do not exceed the number of authorized but previously unissued shares.

    D.Shareholders received their additional shares by confirming year-end holdings with them.
    C.The additional shares issued do not exceed the number of authorized but previously unissued shares.

    The auditor should gather evidence that the stock split-up effected in the form of a dividend was properly authorized by the board of directors and does not result in the issuance of shares in excess of the number permitted by the articles of incorporation. The auditor also must verify that the amounts transferred from retained earnings were equal to the legal requirements of the state of incorporation. However, for an issuance of no more than 20 to 25% of the outstanding shares (a stock dividend), the amount capitalized should be the fair value. If the split-up is not effected as a dividend, that is, when the intent is solely to reduce the unit price of the shares, no amount is capitalized.
  4. Determining that proper amounts of depreciation are expensed provides assurance about management’s assertions of valuation and allocation and
    Classification and understandability.

    The classification and understandability assertion states whether particular components of the financial statements are properly presented, described, and disclosed. For example, if cost of sales includes depreciation, the auditor should determine that this classification is appropriate and that it is properly disclosed.
  5. In violation of a company policy, Lowell Company erroneously capitalized the cost of painting its warehouse. The auditor examining Lowell’s financial statements would most likely detect this error when

    A.Examining maintenance expense accounts.

    B.Examining the construction work orders supporting items capitalized during the year.

    C.Discussing capitalization policies with Lowell’s controller.

    D.Observing, during the physical inventory observation, that the warehouse had been painted.
    B.Examining the construction work orders supporting items capitalized during the year.

    The audit plan for property, plant, and equipment includes verification of additions by vouching them to the original documents. The entries are traced from the journals back to authorizations, vendors’ invoices, contracts, deeds, and construction work orders. Inspection of the work order for painting the warehouse should alert the auditor to the capitalization of an expense.

What would you like to do?

Home > Flashcards > Print Preview